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Salary vs Dividend Calculator 2026/27

Find the optimal balance between director salary and dividend distributions to maximise your personal take-home.

2026/27 HMRC rates No signup No data stored Browser-only calculation

Optimisation Settings

£

Your limited company's annual profit before director salary and corp tax.

£

The amount of money you want to take home personally after all taxes.

Recommended Salary Draw

£12,570

Remaining drawn as £32,430 dividends

Optimal Tax Split

Company Corporation Tax £10,230
Employer National Insurance £1,135
Personal Income Tax on Salary £0
Personal Dividend Tax £2,350
Total Tax Burden £13,715
Retained Company Profit £11,285

Comparison: Taking Pure Salary

Tax cost of drawing as Salary: £21,430

🎉 Saving with Salary/Dividend Split: £7,715 per year

Recommended Salary

£12,570

Dividends: £32,430

Why do Directors Take a Low Salary and High Dividends?

Limited company directors have flexibility in how they reward themselves. Instead of receiving a standard PAYE salary, they can draw profits as dividends.

This strategy is highly tax-efficient for two reasons:

  • No National Insurance: Dividends are not subject to employee or employer National Insurance, saving up to 15% on company tax costs and 8% on personal tax costs.
  • Lower Tax Rates: Dividend tax rates are lower than standard Income Tax rates (10.75% vs 20% in the basic band, and 35.75% vs 40% in the higher band).

What is the Dividend Allowance for 2026/27?

The Dividend Allowance remains at £500. This means the first £500 of dividend income is tax-free. Any dividends drawn above £500 are taxed based on your total personal income tax band. Note that dividends are treated as the top slice of your income, so they stack on top of any salary or other earnings.

What Salary Should a Director Take in 2026/27?

For most directors who are the sole employee of their company, the optimal salary is £12,570 per year (£1,047.50 per month).

Here is why:

  • It fully utilizes your £12,570 personal allowance, meaning you pay £0 personal Income Tax on the salary.
  • It equals the National Insurance Primary Threshold, meaning you pay £0 employee National Insurance.
  • It keeps you above the Lower Earnings Limit (£6,396), ensuring you receive a qualifying year towards your State Pension.
  • The salary and any employer National Insurance paid are fully allowable business expenses, reducing your company's Corporation Tax bill.

Tax bands stack and impact drawings

If your personal income exceeds the Basic Rate limit of £50,270, any additional dividend income falls into the Higher Rate band and is taxed at 35.75%. Above £125,140, the tax rate rises to the Additional Rate of 39.35%. Planning your drawings to avoid pushing your total income into higher bands is highly recommended.

Director Pay FAQs

Why do directors take a low salary and high dividends?
Dividends are not subject to National Insurance (which can be up to 8% for employees and 15% for employers). Additionally, dividend tax rates (10.75% basic / 35.75% higher) are lower than standard income tax rates (20% basic / 40% higher). By taking a low salary and high dividends, directors can significantly reduce their overall tax burden.
What is the optimal director salary for 2026/27?
The optimal director salary for most single-director limited companies is £12,570. This amount matches the personal allowance (resulting in £0 income tax) and aligns with the National Insurance Primary Threshold. Drawing £12,570 allows the director to build up qualifying state pension years without paying employee NI.
How does employer National Insurance affect my director salary?
In 2026/27, Employer National Insurance is charged at 15% on salaries above £5,000. If you take an optimal salary of £12,570, your company will pay 15% NI on the £7,570 excess, which amounts to £1,135.50. This is still tax-efficient because the salary and employer NI are allowable business expenses that reduce the company's Corporation Tax bill.
What is the dividend tax allowance in 2026/27?
The tax-free Dividend Allowance is £500. You do not pay tax on the first £500 of dividends you receive in the tax year, regardless of your other income.
Can I pay dividends if the company is not making a profit?
No. Dividends must only be paid out of retained company profits. If your limited company has no accumulated profits (known as distributable reserves), paying a dividend is illegal. You would have to draw a standard salary instead.
How is dividend tax paid and reported?
Dividend tax is not deducted at source by your company. Instead, you must report your total dividend income on your personal Self Assessment tax return and pay the tax owed by 31st January following the end of the tax year.